Posted
by
ScuttleMonkey
on Friday June 27, 2008 @12:03PM
from the cat-and-mouse dept.

theodp writes to tell us that according to the Wall Street Journal, Amazon.com has raised a few eyebrows with their strategy to avoid paying sales tax in eight states where they have warehouses or distribution centers. "As an online retailer, Amazon can avoid collecting sales tax in states where it has no presence, at least until Congress changes the law. But in states where a company has actual facilities, such as warehouses, states tax officials can require the company to collect sales tax. Despite operating hundreds of thousands of square feet of distribution facilities in the eight states, Amazon says it doesn't have any presence in them. The company argues that it doesn't operate the plants, its wholly owned subsidiaries do."

They have the same problem any distributor does, the relationship with the facilities they control. If they make income from the facility in a domain, then the domain will exercise a level of control over them.

"Amazon is benefitting from police and fire protection, and other services in the states where it has facilities, it ought to be collecting sales tax just like any other local business." -FTA

I disagree, they should be paying property tax for these services (which I am sure they are). They should only be paying sales tax on retail sales not on products that are merely being distributed and since this is a warehouse not a storefront, state sales tax is not the answer.

Really though, sales tax is always a regressive tax and I don't think it is a great idea in general for that reason...

But defining a tax as "progressive" or "regressive" carries the underlying assumption that every tax is an income tax. There's no particular reason to compare the amount paid via sales tax to a person's income; compare it to the amount he consumes. It's not regressive. It's perfectly flat.

With a sales tax, the rich tend to buy more non-necessities, and more expensive ones like cars and homes. So they naturally would pay more in sales tax than a lower income family.

True, they would only pay a smaller percent of their income if they tend to save and invest that income. Rather than spend it. But how many rich people do you know who don't go out and buy fancy cars and big homes?

Progressive taxes (income tax which increases in percent as the principal increases) are nonsense. Why should someone who works harder, innovates, starts their own business, or pursues a higher-wage career be penalized? It is not 'unfair' that some people have higher salaries than others.

And before you go accusing people of flunking math, you should make sure you didn't flunk economics.

In order to have any sensible discussion of tax systems with regard to income, you need to learn to think at the margins (especially considering that US income tax is actually calculated at the margins). For those who don't know, the marginal value of a good is the value of one more of those goods. For instance, if you are hungry, the marginal value of a pizza is pretty high but after you have had 9 piz

No, I think that everyone should be taxed at the same rate. I never said anyone should pay less or more than anyone else; that's your arguement. You make more, you pay more because x% of a larger pie means more taxes. The overall rate should be flat. Progressive tax rates are regressive.

On more thing, back to the issue of sales tax. It also manages to collect from underground economies that pay no income taxes at all(under the table workers, illegals, drug dealers, prostitutes, etc.).

Why should someone who works harder, innovates, starts their own business, or pursues a higher-wage career be penalized?

It is in the interest of the people to provide a safety net for those who cannot earn enough to feed, clothe, house, and educate their families. A slight subsidy to lower-income families helps keep them out of subsistence crime.

What about the maid/layers/accountants/travel etc. It's still spending but it's not directly taxed. So, the rich spend less of the money they spend on sales tax than the poor (and a lot less than their total income).

Because they get more. Someone that's a minimum wage worker at two jobs barely supporting a family will be paying taxes. They support "social infrastructure" (I'll use that to describe stability added through welfare programs for the poor, handicapped, and elderly). They support the military. Those are the two largest expenses. As long as they manage to work two minimum wage jobs (pretty easy, since no one wants them McDonald's is always hiring

Why should someone who works harder, innovates, starts their own business, or pursues a higher-wage career be penalized? It is not 'unfair' that some people have higher salaries than others.

It's a strawman (and not a clever or subtle one) to claim that advocating a progressive tax means that one thinks different salary levels are "unfair".

One can advocate a progressive tax based on the Rawlsian argument, namely, why should someone who is naturally smarter or stronger benefit over someone who, through no fault of their own, was born crippled. These arguments beg for a tax on natural gifts. Unfortunately, income tax is the best stand-in.

Alternatively, one can use two economics arguemnts. The first is that the rich consume more goods then the poor. They have more possessions that require protecting, make more use of air traffic controllers, recieve higher unemployment beenfits, etc. etc.

The second is that law and order are worth more to the rich. Someone $300,000 dollars in debt, about to lose their house, car and all worldly possesions, might value a continuing rule of law at a very low, or even negative rate. They have little to lose, and can probably gain if they are limited to whatever they can hold in their hand. The rich on the otherhand have vacation homes, yahcts, etc. They have a lot more to lose.

Progressive taxes also result in higher salaries for those at the bottom, as the allure of the future raise is lessened, making it cheaper to give people at the bottom each a smaller raise. That, combined with the lower tax burden, increase the freedom to attempt to become an entrepuner. Progressive taxes increase the number of people who will attempt it, while only hurting those who succeed.

There's a practical argument. If you insist that everyone pay the same amount, people would quickly become bankrupt with their 1/300,000,000th of the national budget. The rich have to pay more taxes because, well, the top 1% owns 98% of the country.

There is also a question of original aquisition. The original obtainment of any good is never fair. The first farmer gets the best land. The strongest evil warlord stole the diamond mine. The money that you get paid with was never entirely yours, because the person who paid you never entirely owned it, etc. etc. back to when it was originally aquired. Hence, redistribution attempts to correct that in an ongoing fashion.

Why should someone who works harder, innovates, starts their own business, or pursues a higher-wage career be penalized? It is not 'unfair' that some people have higher salaries than others.

This is total bull. You think Bill Gates works harder than a factory worker or construction worker? Had Bill Gates been born to a poor slum family, he'd just as likely be a petty criminal. Its asinine how the rich think they work harder, and thus their rewards are greater. Its all luck, as far as I'm concerned. The rich no more deserve their wealth than the poor deserve poverty.

Just because they can afford to pay a higher percentage doesn't mean that it's fair to make them. The $500K may actually utilize government funded programs less than the $100K family, which could make it even less fair. On paper I agree that it seems fair to pay more if you have more, but in the real world it's not so black and white.

By definition (in the discussion of taxes, progressive and regressive are economic terms, not political, and are thus well defined) a sales tax is regressive. You are correct in your statement that it is perfectly flat--you just forget the step where a flat tax is regressive.

A regressive tax will take a larger proportion of a poor person's income than that of a rich person in any particular exchange. If you are buying a stick of butter for $1 and there is a 10% sales tax (hey...it is almost that high he

You're right about that being the accepted definition, but it's that definition that I'm taking issue with. The only reason to bring income into the question at all is an underlying assumption of Marxism.

Not really. Of course it's bad if people get in over their heads. But that's not an argument for why the tax code should be used to enforce social experiments to fix this. Charity begins (and should end) at home, not at the business end of a gun.

Your math is correct, but the same transaction also takes a larger % of the poorer persons income regardless of tax. Should we lower the price of the butter to people who make less? Should we adjust all prices based on a % of income?

Sales Tax is a tax the consumer pays not the company... Amazon is already paying for property taxs, revenue tax, employee wage tax.... Paying sales tax is a tax that We pay as a consumer to the company who then resends it to the apporprate state/county/city on your behalf. So if they are based in Delaware but not in New Jersy they are not paying taxes for their services in Deleware they are paying New Jersey because they want the income from that person.

Right, but if the feds find Amazon guilty of tax evasion or fraud then Amazon is going to have to eat the tax of all those states' sales going however far back. I don't know where they have a presence but some states have sales taxes up to 7% and local taxes that shoot even higher. That's quite a bite.

Only 7%?Here in Oklahoma we havew to deal with an 8.75% sales tax. (at least on some categories of items-I could be wrong, but it seems to vary between 8.25% and for sure 8.75% depending on what you are buying)

They could however the consumer ends up paying for it in the end.Echonomics 101. Tax the company, the consumer pays the different. It is just a case of symantics of having a line saying Sales tax or adding it to the price. Not adding it to the price could mean they will add the higest sales tax into the price of the product so if you don't mind paying like 15% extra for a product then you should be happy.

Really though, sales tax is always a regressive tax and I don't think it is a great idea in general for that reason...

Sales tax is flat, it is only implied to be regressive because we assume, for example, the first $50,000 a person spends must be on necessities, and since that was all they had to spend as a $50,000 earner it was regressive when compared to a person spending 50,000 from a 100,000 in earnings. If the person earning 100,000 spent other 50,000, they would pay twice as much in sales tax as the 50,000 earner. The fact is that they both spent the same amount in taxes at the same spending level. That is not reg

You forget how little rich people spend on goods vs services. Having an accountant is still spending even if it's not taxed. But if that same accountant writes a book and sells it to the poor then they pay sales tax on his time plus the cost of the book's materials.

If somebody makes just enough to buy necessities in a jurisdiction where necessities are not subject to sales tax, their sales tax is zero. Anybody who makes optional, luxury purchases (which by definition means they are more wealthy than the person who can afford only necessities) will have a non zero tax rate. A higher tax rate for more wealthy people, hence the tax is progressive. Distinguishing based the ratios of money spent on goods over services is a distraction from thi

Excellent point, however I wonder if they're already paying little to zero property tax due to whatever incentive package the local government offered to have the distribution center built wherever it is.

Typically, if you're a customer, you have to pay sales tax to the seller if they have a "business presence" in your state. Business presence, of course, is quite ambiguous. Several online retailers have simply rolled over instead of fighting against this (Crucial.com comes to mind; they charge sales tax even if they don't have a presence in the state, and remit the tax to the taxing body in your state). Amazon on the other hand doesn't have the luxury of rolling over. Part of their competitive edge is not having a sales tax, and frankly, they shouldn't have to pay one as someone else mentioned, as the services their distribution centers use should be covered by their property taxes.

Part of their competitive edge is not having a sales tax, and frankly, they shouldn't have to pay one as someone else mentioned, as the services their distribution centers use should be covered by their property taxes.

Without roads it is really difficult to distribute products. Road maintenance is a major cost to states part of which is covered by state sales tax.

No business would last long if they paid the sales tax without collecting it from the buyer. Also, how would you build it into the cost of your products, since sales tax varies state to state (and county to county sometimes).

Buy from Microcenter.com and if they have a store in your state, they will charge you sales tax and shipping - even though there warehouse that they ship from is in Ohio, they charged my GA sales tax.
Why are you upset about that? If they hadn't charged you sales tax, then you would have been required to file use tax, which would have cost you the same amount and taken you a few extra minutes, whereas Microcenter saved you all the effort.
Let me guess, you don't file use tax and so you will single out and punish companies who don't aid you in your attempt to evade taxes.

They only have to pay one tax for each transaction in a state where the buyer is a resident. There are 8 different states. Each transaction involving a buyer and a seller in that same state is subject to the tax of that state.

Can you imagine every transaction paying sales tax to 8 states? Just because they have a distribution point?

I agree. This has to exist. Think of this from a grocery shopper's perspective. I work for General Mills, and I know we have distribution points in a number of different states. Should you, as a customer going into a grocery store and buying a box of cereal, have to pay sales tax for your state as well as eight states you don't live in, just because the product came through those distribution points o

The problem with your statement is that, lacking any presence in NY, NY doesn't have any legal right to force amazon to collect sales tax for them.

It's different if they DO have a presence, which is where this conflict comes in.

And to simply try to ban Amazon from selling to NY residents if they DON'T comply with your sales tax idea is getting into interstate commerce - which they're not allowed to do. That's the feds domain.

This is why if you're a smart businessperson, you should avoid putting your headquarters and facilities in states that have both sales tax and large populations. The best way to keep costs to a minimum is to pick states with no sales tax, followed by states with low population. So Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon have no sales tax at last count, though not all of them are ideal location-wise. So here's what you do:

Delaware covers the northeastern U.S. New Hampshire would work in a pinch.

Oregon would take care of California and the western U.S.

Billings, Montana area would take care of the midwest.

Arkansas covers the southern U.S. while impacting the smallest number of people.

Headquarters in Wilmington, Delaware (just outside Philadelphia) so you have ample qualified people willing to to work there.

By setting up a company in this way, you can basically cover the entire U.S. comfortably while charging sales tax for less than 1% of the population of the U.S.

Chutzpa indeed! Cabela's took that approach in Idaho and actually got a special exemption from the legislature. They claimed that the Internet operation and the retail operation were different companies, so the Internet operation should not collect sales tax in Idaho.

It's not that big companies get to make the laws... It's that governments need to realize that their decisions have consequences.

Why shouldn't a company move their operations to an area where the local authorities are going to take a smaller cut of their profits, or impose a lower overhead on their operations? Those other governments seem to do just fine without the additional revenue...

I didn't mean to make it sound like a knee-jerk reaction against "big companies", and I do not fault them for moving. Jacking up local taxes is SUPPOSED to move companies out, if that isn't happening then things are out of balance.

It's that governments need to realize that their decisions have consequences.

But businesses have consequences to their decisions, as well. Amazon doesn't have those warehouses and distribution centers spread across several states just because they liked the scenery -- it offers a business advantage to them, in lower labor costs, faster shipping times, whatever. Sure, they could just shut them all down to "punish" the states, but they risk losing business if shipping takes longer or they have to raise prices to reflect higher local wages.

The full 8.75% sales tax rate. Not only that, but the price taxed also includes the shipping. Not that that should surprise me but it certainly does annoy me. Amazon is suddenly becoming much less of a good buy than it was.
Thank you Albany.

That's just wrong.. I know some companies misinterpret the tax laws and do this, but that is paying double tax, because the shipping companies also charge tax on shipping.. If the shipping charges are reduced (they charge you the rate without tax) then tax on the total would probably work out pretty close.. would have to see their freight bills to know that though.

They could then threaten to move the distribution centers to other states, and fire everyone there unless they relocate. Yes it's cold-blooded and etc.

But, it would make most states (esp. states where jobs and money are tight) stand up and take notice that you're about to cut a chunk of jobs (and income tax revenue, property tax revenue, injection of money into the local and state economy, etc) out from under them. Call the state next door and say "I'd like to build a large distribution center and hire (n*1000) employees for it in your state... we'll pay all the other taxes, but please don't charge us for sales tax. If the benefits outweigh the loss of sales tax, I'm willing to bet the state (esp. hard-hit or not-so-large states like Mississippi and etc.) would happily take the deal.

IIRC, Wal-Mart does this all the time (at least with local governments) - getting sweetheart tax waivers in exchange for the locality getting jobs and other economic benefits.

Now sure, it wouldn't be easy to just pull up stakes and move, but distribution centers are warehouses, which means that it's not a very complex infrastructure to move... the hardest part would be shifting the logistics.

They could then threaten to move the distribution centers to other states, and fire everyone there unless they relocate. Yes it's cold-blooded and etc.

But, it would make most states (esp. states where jobs and money are tight) stand up and take notice that you're about to cut a chunk of jobs (and income tax revenue, property tax revenue, injection of money into the local and state economy, etc) out from under them. Call the state next door and say "I'd like to build a large distribution center and h

The local government was filled with idiots. A contract must be upheld. If they had signed something of "must remain here for X years" and "this contract persists through change of ownership" then it would have been covered. Don't blame the company for the government writting a crap contract. Vote out the people that made the contract and get some competent people in government and there won't be a problem.

Never a good idea. After all the government makes the rules and interprets the rules. Imagine if the government decides to seize the warehouses and their contents. Amazon will have a serious problem at that point.

No... They'll just move their warehouse to another jurisdiction, depriving the original locality of income taxes from all the laid off workers, corporate taxes, property taxes, fees, and payroll taxes. (and probably creating unemployment liabilities)

There's a saying that comes to mind when the frequent topic of heaping the responsibility of poor governmental fiscal decisions on corporations comes up. It's: "Biting the hand that feeds you".

What makes you think the contents of one warehouse is a significant hit over the long term costs of being forced to do the government's dirty work for them? (Not to mention the loss of business associated with being forced to become the tax collector?)

How is moving to a locality with different rules "cheating"?

Your logic is exactly the kind of logic that has led many states into economic trouble.

Michael Mazerov, senior fellow at the Center on Budget and Policy Priorities in Washington, D.C., says that because "Amazon is benefitting from police and fire protection, and other services in the states where it has facilities, it ought to be collecting sales tax just like any other local business."

First off, that sales tax would be for all Amazon sales within the state of the facility. So you can figure that only some (I'm guessing between 1/5 and 1/20) of the sales would be taxed in

Second, that subsidiary is paying for the services mentioned above by way of corporate / property / employment taxes, etc. True, not as much as the local hardware store down the street that charges sales tax as well, but they are paying the lion's share.

They're actually probably paying *more* than the local hardware store down the street. This is because the local hardware store doesn't pay sales tax either (purchases for resale are exempt). They do, however, *collect* sales taxes from their customers. It is wrong to attribute those as paid by the store, though.

How popular would this guy be if he didn't spin the facts though? He'd have to tell people that *they* should be paying more taxes, instead of implying (read: lying) to people that some faceless cor

They said the online sales were a different company that the retail store.
Maine fought it and they (Cabellas) eventually moved 4 or 5 staff from their online and phone orders into Maine so they would collect sales tax on internet and phone orders placed in Maine and the case wouldn't go to court, since if it was ruled that subsidiaries counted as a presence in the state it would affect many other states as well

I was involved with a program through my University that put us in contact with engineers who were also entrepreneurs.
We spent a week in the Silicon Valley area catch up with Alum who had gone on to become VPs of engineering at startups, or presidents of companies based on their work.
One of them was a man who was Product Manager for the Kindle at Lab 126 in Cupertino.
He talked with us for a while, basically hinting at us very strongly at what the kindle was, and showing us some prototypes that eliminated any doubt as to the devices nature.
He also had his staff talk to us. One man, who had worked closly with Bezos said this (paraphrased):

"Jeff HATES taxes. The reason that Amazon has made as much money as it has is because Jeff carefully played the game to avoid paying as many taxes as possible. Lab 126 is a wholly owned subsidiary, because if it wasn't, every California resident would have to pay sales tax on Amazon.com."

And that was for a research lab that was actively developing a new product for direct sales from Amazon.com.
Somehow, avoiding sales tax for warehouses doesn't surprise me.

Over the last decade, online and brick/mortar businesses have settled into a workable relationship. Each has benefits and disadvantages; if you buy online you don't pay sales tax but you do pay shipping. If you buy from a retail store you don't have to pay for shipping but you do pay sales tax.

So for items costing around $100, there's essentially no real price difference. You can get it today or wait a week but the final cost is pretty much the same.

The company argues that it doesn't operate the plants, its wholly owned subsidiaries do.

Tax law is complicated so I wouldn't presume to know the particulars of Amazon's situation. It's quite common for economic entities to be comprised of a number of legally separate companies. For example General Electric is actually about 30 or so large legally separate companies under the umbrella of a single economic entity. In principle there is no problem with Amazon using subsidiaries to control their warehouses. Sometimes using subsidiaries can have beneficial tax consequences so there is no fundam

Do you really think that Bill Gates is as spineless of a coward as most of the livestock at cube farms are?

Yes, I do. Haven't you noticed that Bill Gates has been bullied around by Steve Ballmer ever since Windows 1.0. The reason Gates' work is never realized is because he's never been in charge. He has done precisely what Steve has told him for years. And Steve ruined his entire image and turned Mircosoft from a beloved entity into a corrupted and one of the most hated companies. So ya, I do think Bill Gates is spineless.

In Colorado cities (if they choses to have a sales tax) can either have the State collect sales tax for them, or if they don't trust the state or think that they can collect tax more efficently they can collect it themselves. You can imagine the ensuing nightmare of figuring out who to pay what and when.

Exactly.. it's not Amazon that is paying the tax, it's YOU. Corporations do not pay taxes, they only raise the cost of their products and services. Amazons customers pay that tax, and I think they are dammed well in their right NOT to charge it.

The simple solution most, if not all of our problems is to tax everything bought/sold/traded/etc over the intarweb.

I know your post was tongue-in-cheek but I have to point out that everything bought on the internet is already subject to sales tax. It's a tax that the government cannot effectively enforce (yet), and so no one bothers to pay it (so far).